2008-08-21 IKB Implodes:
IKB was bailed out again! This is the final bailout which is actually a buyout of the subprime battered German bank. With that we say that the tortured bank has imploded not so quietly into that good night. The parent bank KfW has been in frantic, 11 month quest for a buyer for what has essentially become a level 3 asset.
KFW says it’s a good deal, but it’s more like good riddance and good deal or not for once, you can take management at its word it is happy to be done with IKB.
The battering goes on for IKB. As the bank confesses to a $1.6 billion loss in in the first nine months of 2007. The bank forecasts a loss of $315 million for its fiscal year 2007. among its numerous distresses, the bank has received $12.6 billion of bailout money, which we consider capital raised. IKBs financial statements are a mess and incomplete. We will provide level 3 assets when they become available.
As for the third quarter results, which had been long delayed because of its bailout, the bank said it earned 10 million euros ($15.8 million) in the October-December period, but did not provide the figures from a year earlier. However it said the result was hurt by another 70 million euros ($110.3 million) in write-downs, along with tax-related expenses of 61 million euros ($96.1 million).
IKB also said that its provisions for likely loan losses in the period was 207 million euros ($326.3 million), up from 192 million euros,
For now, we have $1.3 billion in prior write-downs to which we add the $110.3 million and tack $326 million of loan loss provisions on top of that.
Here’s the tally thus far:
- Tally for Write-Downs/Charge-Offs: $1.3 B+ $110 M = $1.41 B
- Tally for cash raised: $12.6 B
- Current level of Level III assets at ?
- Current level of loan loss reserves at $326.3 M
We now sum all the distresses to get IKBs current Pain of $14.3 B
What is striking in items one to four is the walk being 12.6 billion dollars of bailout cash without which the bank would have long ago, imploded.
The outlook at IKB has changed from returning to healthy profitability to stark survival as it now fights for its very life:
“The bank is dead and as I mention on each and any occasion, it has seen further problems; the bank is not worth a dime,” one Frankfurt trader said.
Dead or dead man walking, trading in the banks shares was frozen when it issued yet another profit warning, and revealed that it was suspending the sale of billions of euros of risky assets tied to US subprime mortgages, and getting yet more state aid:
Trading in shares of ailing IKB Deutsche Industriebank AG was halted briefly Thursday after the company disclosed another profit warning and warned of more write-downs on its portfolios that would result in a loss of some $1.3 billion.
According to our count the subprime related write-downs to are at least 950M euros or $1.41B and the running total on the bail out is up to $10.2B, accounting for losses of 2.1 billion euros ($3.3 billion). To that we can add the $1.3 billion in losses written down to subprime mortgages above.
There is no way to account for the bank’s remaining US subprime related exposure, but maybe we should for this particular bank keep a running tally of the number of bailout attempts. So far, the number is four.
It may not sound like much, but there is no way to overestimate the threat posed by the lawsuit. First, win or lose, there will be more suits filed. Second, there is no institution on earth capable of surviving the forced payouts of a courtroom defeat. So, with the simple mundane act of filing of that lawsuit IKB finds itself exposed to the crushing weight of incalculable liabilities of the subprime contagion under which the bank may simply implode.
We will not change the tally above, but note a possible “infinity” has just been added.
When scandal-riddled (IKB) Deutsche Industriebank AG came clean about its ties with US subprime last summer, the shares sold off and the CEO Stefan Ortseifen retired.
First the bank said ‘earnings will be “significantly lower” than the 280 million euros ($383.5 million) that it had forecast,’ at which point KfW, a German state-backed bank which holds 38% of IKB, moved in to assure the bank’s creditworthiness. It was a costly, move exceeding $3 billion. It may have worked for the short term, as Commerzbank, despite subprime troubles of its own, announced a rescue package for IKB. Other banks expressed interest, attracted by the bank’s position as the “market leader in Germany for long-term lending to medium-sized enterprises.” But with no end in sight to the mounting losses, KfW pulled out . But it was not so easy to leave (in echoes of Northern Rock), and now the on-again-off-again KfW led bailout is on again and up to 7.7 billion euros.
Strangely, it has been almost impossible to find data on the amount of write downs IKB has taken — it’s like a state secret. But there is copious reporting of the most recent bailout amount. As of February 12 ,
It has been propped up by two rescues costing more than €6 billion, or $8.7 billion, and shouldered mainly by its top shareholder, the state bank KfW.
And the very next day the stricken bank got 1.5 billion more:
Germany agreed a 1.5 billion euro rescue package for IKB on Wednesday, the third bailout for the subprime-stricken German lender, saying a collapse of the bank would have “incalculable” consequences.
To who, the insiders? State bureaucrats and upper-echelon management? One should consider at this point that in the long term, the people may actually benefit from greatly-increased transparency and some real free market discipline. The bailout will have have at least one very calculable consequence for taxpayers: inflation (unless, improbably, the value of these assets comes back to somewhere near par).
Finally on Feburary 13, we get some info on write-downs:
Late on Wednesday, IKB announced new write-downs, saying it had revalued its balance portfolio investments of currently 5.9 billion euros and the valuation losses exceeding the existing risk shield provision added up to about 950 million euros.
So the subprime related write-downs to are at least 950M euros or $1.41B and the running total on the bail out is up to $10.2B.